Just like preparing for a family road trip, we believe all business owners should develop a roadmap to achieve their financial goals.
Throughout the pandemic we got used to hearing terms such as “fluid” and “pivot”. We were all doing this to make sure our businesses would survive.
Reflecting on the past two calendar years makes us realize how important it is to be sure we are continuing to look to the future. While we have survived the pandemic, we continue to be fluid and pivot among economic changes and challenges. There are important items to address in your current and future financial strategies. These are a few items you should be discussing with your professional team.
Given the rapidly changing business climate, we always recommend meeting with your professional team 2 to 4 times throughout the year. These meetings should develop an appropriate roadmap for your financial path. This involves an analysis of where your practice is currently and what your short and long term financial goals are. You can’t make a plan for where you are going if you don’t know where you are starting!
Here is what a normal client meeting route should look like.
Updating Monthly and Annual Budgets
Your first stop should be budgets. If you don’t have a current budget in place already, that should be one of the first steps in the relationship. A quality budget can be created using historical data as a starting point, but that data should be analyzed to be sure it is appropriate for future periods.
You should be updating your practice’s budget at least once a year. If your budget is still based on 2020 or 2021, it probably needs a tune-up. Supply costs and employee compensation numbers have seen dramatic increases over the past twelve to eighteen months. Updating your budget to reflect these changes will give you a better tool to benchmark your practice’s financial performance and to plan for the future.
Impacts of Cash Flow Changes
The next stop with your professional team should be an update on cash flow, because cash flow is king.
Cash flow includes more than just taxes. While it can sometimes be a hard pill to swallow, paying the least amount of taxes is not always the correct answer. Having custom financial goals in mind for our clients allows us to advise on proper cash flow decisions. This is only possible by taking into consideration the business and personal financial goals.
The increasing costs could be impacting the amount of profit the practice is generating. This can have an impact on the amount of cash available for debt payments. It also impacts the amount of money available for compensation of the owner(s). When we see an increase in dollars going out the door with our clients, we want to be sure they are offset by creating additional money coming in or a reduction of outflows in a different category.
Sometimes these changes in cash flow will require an adjustment to any financial goals in place. This may require budgetary or timeline changes when reviewing your professional and personal financial strategies and goals.
While tax payments are part of a cash flow analysis, they don’t always lead the discussion.
Other Stops and Detours Along the Way
Just like any well-planned route, we tend to have additional stops and some unplanned detours. Current economic conditions and ever-changing legislation make these a necessity. Some recent additional stops and detours have been in connection with the following topics.
Patient Fee Adjustments
As costs increase across the board, it is important to make sure the fees being charged to patients are appropriate. You want to make sure profits are being maximized while still providing services at a cost comparable to other practitioners in your market. Reviewing local and regional trends can assist with updating these fee structures.
Economic inflation and workforce shortages have made staff retention an important aspect of financial planning. We are seeing this impact across the board in many industries. It is important to evaluate the compensation plans for your key employees. The cost of retaining a good employee may be less than trying to find a quality replacement. We are finding that just pushing the raise button helps in some instances, but there are also other options that might not be as big of a financial impact to the practice.
- Retention bonuses can sometimes accomplish the same thing as a raise. The nice part about a bonus is that future raises aren’t compounded on the bonus like they would be on a raise. The downside is the potential loss of an employee after issuing a bonus. Depending on the size and type of bonus, an updated employment contract may be beneficial.
- Team building can bring employees together and improve morale. Defining culture and providing non-traditional benefits can strengthen a workplace. When employees enjoy where they work and the people they work with, it can make it harder to leave.
Not all employees are going to be retained. Attrition, at some level, is normal in any business.
State and Local Tax Workaround
New legislation in many states now allows for a workaround on the state tax deduction limit applied at the individual level. If your practice operates as a passthrough entity (S-corporation or Partnership), there may be a benefit available to having the practice pay the owner’s share of state income taxes directly. This can result in an annual tax savings with minimal impact to cash flows. Where these payments are made from and the timing of them can have a significant impact. If this is advantageous to you for 2022, you will need to make some adjustments prior to year-end.
Don’t Take the Trip Alone
On your road trip, relying on the GPS to give you that route or a co-pilot to read the map allows you to focus on driving. With a well-mapped plan, you can achieve your personal and professional financial goals. Being able to rely on a professional accounting relationship allows you to focus on your practice and assists with achieving financial success.